If an investor constructs a covered call,
A)there is no limit to the potential profit
B)risk is increased
C)risk is reduced
D)the term of the position is increased

Question

Quizplus · Accepted Answer

Constructing a covered call involves owning the underlying stock and selling a call option on that stock. This strategy reduces risk because the premium received from selling the call option can offset some of the potential losses on the stock. However, it also limits the potential upside profit because if the stock price rises above the strike price of the call option, the stock might be called away.

If an Investor Constructs a Covered Call